Fair price hikes vs. unfair price hikes
New study explores why some explanations for price increases are not accepted by consumers
A new study from the September issue of the Journal of Consumer Research shows that consumers align material goods and services separately when considering explanations for price hikes. Consumers think it is fair to raise the price of a good when the cost of obtaining that good also increases for the vendor, for example with produce during a low-yield season. Similarly, consumers think raising the cost of a service is fair when the cost of providing that service increases. However, consumers do not consider it fair if the price of a good is raised in conjunction with an increase in service cost to the vendor, or vice versa.
"We show that inherent differences between goods and services can exert a large influence on perceived fairness," write Lisa E. Bolton (University of Pennsylvania) and Joseph W. Alba (University of Florida). "Goods provide consumers with a link between the offering and the vendor's costs, such as the material costs to a manufacturer or cost of goods sold to a retailer."
When the price of a good goes up but material costs do not, consumers infer greater profits and less fair prices. Services do not have material costs – such as the price for raw material – to serve as a price comparison point against the price to consumers.
Thus, less tangible cost increases – such as overhead – are not necessarily deemed fair reasons for producers to increase prices. It seems that consumers feel that some costs are aligned with service and not with the material good, and "in the face of increased costs, not all efforts to maintain profit are viewed equally."
"Inasmuch as fairness is a driver of customer satisfaction, our findings describe occasions on which consumers will be particularly dissatisfied with goods and services," explain the authors.
Lisa E. Bolton and Joseph W. Alba, "Price Fairness: Good-Service Differences and the Role of Vendor Costs." Journal of Consumer Research, September 2006.
Last reviewed: By John M. Grohol, Psy.D. on 30 Apr 2016
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